In 2023, the Pakistani economy nearly defaulted on the payment of foreign debts. At one point last year, inflation in Pakistan went above 40%, sparking angry protests. Pertinent to note, that only about 5 million of Pakistan’s 240 million people pay taxes. Pakistan’s stability increasingly depends on how it navigates economic doom & gloom. Pak has been facing the risk of a default due to massive external debt obligations. Troublingly, Pakistan’s official foreign exchange reserves are nowhere near sufficient. A major share of struggling Pakistan’s debt is owed to multilateral institutions. United States Institute of Peace: Multilateral debt doesn’t pose major short-term risks. Terms of most loans are concessional, with a repayment timeline spanning 18-30 years. Pakistan owes billions to the Paris Club, a group of 22 major creditor countries. Pakistan holds a large amount of private debt (Private bonds such as Eurobonds). Pakistan also holds billions in foreign commercial loans with steep repayment terms. Pakistan also holds billions in Chinese debt and has a currency swap facility. Pakistan’s large external debt comes with considerable repayment pressure. Analysts: Pakistan’s earnings from exports, FDI and remittance inflows are vital. However, all three inflows are not keeping pace with the Asian nation’s import bill. Downgrades by int’l agencies: Pak’s access to sovereign financing market is limited. If Pakistan ultimately defaults, there will be a cascade of disruptive effects. Pakistan’s imports could be disrupted, which could lead to shortage of essential goods.
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